Costco bulks up to take sales from Coles and Woolies

Retail reporter

Costco Wholesale Australia declared a net profit of $9.73 million for the 53 weeks to September last year. Photo: Michael Clayton-Jones

THE US discount retailer Costco has underscored its escalating competitive threat to Woolworths and Coles by posting its maiden annual profit in Australia since opening its warehouse stores here four years ago. It has also received a further $50 million from its American parent to bankroll an aggressive push in the region.

Operating out of three stores last year, in Melbourne, Sydney and Canberra, Costco managed to more than double its revenue to $609.5 million as shoppers warmed to its club membership model and bulk purchases of everything from whitegoods, fish and furniture, to hearing aids and French wine.

And with another three warehouse stores under construction or awaiting planning approval, Costco has sent a clear warning to the supermarket heavyweights, German discounter Aldi and the struggling convenience store sector that it is rushing towards $1 billion in annual sales in Australia as it fashions a new force in retailing.

The threat to the dominance of Woolworths and Coles comes as Aldi, which specialises in a limited range of deeply discounted private label groceries and merchandise, is set to open its 300th store in Australia next month. The German retailer is believed to have captured 5 per cent of the national market share since it arrived in 2001.

Fresh documents lodged with the Australian Securities and Investments Commission reveal that Costco Wholesale Australia reported a net profit of $9.73 million for the 53 weeks to September last year, its first profit in Australia and a turnaround from the $13.2 million loss it racked up in 2011. The period reflects a full year of operation for its three warehouse stores, with Melbourne and Sydney believed to generate the bulk of the nearly $610 million in sales and membership purchases. Melbourne and Sydney have more than 100,000 members each.

Since opening its first warehouse in Melbourne's Docklands in 2009, Costco has racked up retained losses of just under $38 million, reflecting the start-up costs of building its large-format stores.

The maiden profit in Australia was driven by extra revenue generated from its two new stores and improved productivity. It received a tax credit of $13.4 million.

''I think there is a lot of opportunity for Costco here in Australia and we are thrilled and very satisfied to see that the business is growing,'' said the company's managing director for Australia, Patrick Noone.

Mr Noone said the fresh food category remained popular, as did the bakery, and household goods such as toilet paper and detergents. Hearing aids was a stand-out performer for Costco, while its range of premium wines was also in great demand.

''We sell a lot of beers and spirits, but we do a lot of imported wines from Europe, and that seems to be one of the big growth areas for us. We have a British buying office with Costco and we can piggyback on their buying of European wines.''

Meanwhile, Wesfarmers - the owner of Coles, Bunnings, Target and Kmart - reports its second-quarter sales performance on Wednesday. The market leader Woolworths, which also owns Big W, will unveil its sales numbers on Thursday. Coles is again expected to outgrow its larger rival Woolworths, notching up growth of about 4 per cent against 2.8 per cent for Woolies.